1997 (7) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Exemption of additional conveyance allowance.
2. Exemption of 40% of incentive bonus.

Summary:

1. Exemption of Additional Conveyance Allowance:

The Tribunal allowed the additional conveyance allowance as a deduction, treating it as part of the salary. However, the Department argued that after the amendment to section 10(14) of the Income-tax Act, 1961, by the Taxation Laws (Amendment) Act, 1988, effective from April 1, 1989, the additional conveyance allowance cannot be allowed as a deduction. The notification required u/s 10(14)(i) was not issued, and thus, the additional conveyance allowance cannot be exempted. The court agreed with the Department, stating that without the necessary notification, the additional conveyance allowance cannot be claimed as a deduction.

2. Exemption of 40% of Incentive Bonus:

The Tribunal also allowed 40% of the incentive bonus as a deduction. The Department contended that incentive bonus should be treated as salary and is taxable under the head "Salary" with permissible deductions specified u/s 16 of the Act. The court referred to the Andhra Pradesh High Court's decision in B. Chinnaiah's case [1995] 214 ITR 368, which held that incentive bonus constitutes salary and cannot be exempted without a notification u/s 10(14). The court found that no such notification was issued, and thus, the incentive bonus cannot be exempted. The court also noted that the Central Board of Direct Taxes (CBDT) had clarified that unless an allowance is notified u/s 10(14)(i), no portion of it can qualify for tax exemption.

Conclusion:

The court concluded that the Tribunal was incorrect in allowing the deductions for additional conveyance allowance and 40% of the incentive bonus. The question referred to the court was answered in the negative and in favor of the Department. There was no order as to costs.